Doylestown, Pa.-based Covenant Financial Inc. agreed to merge into Wellsboro, Pa.-based Citizens & Northern Corp. in a transaction valued at about $77 million.
The deal is expected to close in the third quarter of 2020. Covenant Financial unit Covenant Bank will merge into Citizens & Northern subsidiary Citizens & Northern Bank pursuant to the agreement.
Under the terms of the deal, Covenant Financial shareholders will elect to receive either 0.6212 of a Citizens & Northern common share or $16.50 in cash for each Covenant Financial common share owned. This is subject to proration to ensure that, overall, 25% of the Covenant Financial shares will be converted into cash and the remaining 75% will be converted into stock.
Holders of Covenant Financial common stock prior to deal completion will own about 13% of Citizens & Northern's common stock outstanding immediately following the consummation of the merger.
Citizens & Northern will appoint two current members of Covenant Financial's board to Citizens & Northern's board. Two current Covenant Financial directors will also be appointed to Citizens & Northern Bank's board.
Covenant Bank President and COO Blair Rush will join Citizens & Northern Bank's market leadership team as executive vice president and region president. Chief Lending Officer Kelley Cwiklinski will continue as senior vice president and regional commercial lending executive.
S&P Global Market Intelligence calculates the deal is 194.0% of common equity and of tangible common equity and 20.8x earnings, on an aggregate basis. The deal value is 15.08% of assets and 20.20% of deposits, and the tangible book premium to core deposits ratio is 14.13%.
S&P Global Market Intelligence valuations for bank and thrift targets in the mid-Atlantic region between Dec. 18, 2018, and Dec. 18, 2019, averaged 143.55% of book and 151.13% of tangible book and had a median of 16.39x last-12-months earnings, on an aggregate basis.
As of Sept. 30, Citizens & Northern had consolidated assets of $1.64 billion, while Covenant Financial had assets of $512 million. The combined organization is projected to have assets of roughly $2.3 billion after the completion of the transaction, which is expected to produce "substantial" earnings accretion starting in 2020, according to a news release.
Citizens & Northern will expand in Bucks County, Pa., by two branches to be ranked No. 11 with a 3.06% share of approximately $19.19 billion in total market deposits. The deal will also enable the company to enter Chester County, Pa., with one branch to be ranked No. 26 with a 0.07% share of approximately $14.83 billion in total market deposits.
If the merger agreement is terminated under certain circumstances, Covenant Financial must pay a termination fee of $2.9 million to Citizens & Northern, according to a Form 8-K filed by the latter.
Boenning & Scattergood Inc. served as financial adviser and Stevens & Lee PC acted as legal counsel to Citizens & Northern. Sandler O'Neill & Partners LP served as financial adviser and Windels Marx Lane & Mittendorf LLP served as legal counsel to Covenant Financial.